SecProbe.io

CORRESP
1
filename1.htm

BTCS
Inc.

9466
Georgia Avenue #124

Silver
Spring, MD 20901

May
16, 2018

Via
EDGAR

United
States Securities and Exchange Commission

Division
of Corporation Finance

100
F Street, NE

Washington,
DC 20549

Attention:
Jan Woo

Re:
BTCS Inc.

Amendment
No. 4 to Registration Statement on Form S-1

Filed
March 14, 2018

File
No. 333-219893

Ladies
and Gentlemen:

The
following responses address the comments of the Staff (the “Staff”) as set forth in its letter dated April 18, 2018
(the “Comment Letter”) relating to Amendment No. 4 of the Registration Statement on Form S-1A (the “Registration
Statement”) of BTCS Inc. (“BTCS”) filed on March 14, 2018 respectively. BTCS is simultaneously filing Amendment
No. 5 to the Registration Statement (the “Amendment”) with this response letter.

The
Amendment has been updated as appropriate to give effect to changes affecting BTCS and the legal and regulatory climate in which
BTCS operates, including insertion of March 31, 2018 financial statements and updated line item tables.

For
your convenience, each of the Staff’s comments have been restated below in their entirety, with BTCS response set forth
immediately beneath such comment.

The
numbers of the responses in this letter correspond to the numbers of the Staff’s comments as set forth in the Comment Letter.

General

    1.
    We
                                         note you disclose on page 40 that your counsel has advised you that it is “more
                                         likely than not that ether is not a security” but that “due to cost considerations
                                         your counsel has not completed a full analysis as to whether or not ether is a security.”
                                         We also note that you have determined that the bitcoin you hold is approximately 70%
                                         of your eligible assets and that you intend to monitor its value daily. We note you disclose
                                         on page 11 that “regardless of the internal procedures you take to avoid surpassing
                                         the 40% test, future volatility during the course of a day may cause you]to exceed the
                                         40% limit.” We also note you disclose that “it will never be practical”
                                         for you to register under the Investment Company Act of 1940. Please be advised that,
                                         at this time, we are unable to conclude that ether is not a security. With respect to
                                         ether and any new digital asset that you acquire or intend to acquire, we expect you
                                         will continue to monitor the value of your eligible assets to maintain appropriate amounts
                                         of your digital assets so that you are not required to register as an investment company
                                         or that you will promptly register as an investment company if your digital asset holdings
                                         exceed a permitted value.

        Response:

        We
        understand the Staff’s position and will continue to monitor the valuation of our digital assets and endeavor to
        remain below the 40% limit. We recognize we need to comply with all applicable laws and if required we will promptly register
        as an Investment Company or cease operations.

Prospectus
Summary,

Our
Business, page 1

    2.
    Your
    revised disclosure in response to prior comment 3 suggests that your decision not to participate in initial coin offerings
    is solely based on the fact that you “cannot qualify as an accredited investor.” Regardless of whether you qualify
    as an accredited investor, please provide an unqualified statement as to whether you intend to participate in registered initial
    coin offerings.

Response:

We have revised the disclosure
accordingly to include a statement that we do not intent to participate in registered or unregistered initial coin offerings.
See pages 1, 24, and 31 of the prospectus.

    3.
    You
    disclose that you plan to continue to evaluate “other strategic opportunities” in digital assets and blockchain
    technologies. Please expand your disclosure to discuss the type(s) of opportunities that you may pursue, and provide a detailed
    description of the process and framework that you will use to evaluate them.

Response:

Even
though the prices of digital assets have fallen substantially and there remains some regulatory uncertainty, we believe that businesses
using blockchain technology and those involved with digital assets such as bitcoin, offer upside opportunity and are the types
of opportunities that we may pursue. Our process and framework involve our management leveraging their industry networks, which
have been built over many years of working in the industry, to identify and approach potential acquisition targets and gauge their
interest in merging with us. Our acquisition activities are spearheaded by Charles Allen, our Chief Executive Officer who regularly
communicates with Mr. David Garrity, an independent director who is also seeking acquisition targets. Once we reach a point where
any merger might be deemed probable our process would involve the entire board of directors and they would be provided due diligence
materials and other documents, and ample time to review such material consistent with their fiduciary duties and the goal of creating
value for our shareholders.

Our
current framework or criteria is to seek and evaluate acquisition targets in the blockchain and digital asset sector which are:
i) synergistic to our business model, and ii) have sufficient capital to provide working capital and cover public company expenses.
The requirement that a potential target have sufficient capital is a result of our inability to have this registration statement
declared effective which has severely limited our ability to raise non-toxic capital. As disclosed in our prospectus we have limited
cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may help us
sustain our operations without having us rely on toxic funding structures. This framework naturally reduces the addressable universe
of targets as many companies seeking to access the public markets are doing so for access to non-toxic funding.

Management’s
Discussion and Analysis of Financial Condition and Results of Operations

Accounting
Treatment of Digital Assets, page 26

    4.
    Notwithstanding
    your consideration as to whether you are an investment company under the Investment Company Act, please analyze for us whether
    you are otherwise an investment company as defined in ASC 946.

    Response:

    The Company has evaluated
    the accounting guidance in ASC 946-10-15-6 that sets forth the fundamental characteristics of an investment company under
    U.S. GAAP. Additionally, we have included an analysis of the implementation guidance in ASC 946-10-55-4 through 55-10 that
    illustrates these concepts. The Company has reviewed the accounting guidance below and concludes that the Company does not
    have the fundamental characteristics of an investment company for U.S. GAAP purposes under ASC 946. Responsive information
    has been taken directly from the Company’s updated public filings including the prospectus.

U.S.
GAAP describes the following fundamental characteristics of an investment company:

946-10-15-6
An investment company has the following fundamental characteristics:

a.
It is an entity that does both of the following:

1.
Obtains funds from one or more investors and provides the investor(s) with investment management services

2.
Commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns
from capital appreciation, investment income, or both.

b.
The entity or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates
that are not normally attributable to ownership interests or that are other than capital appreciation or investment income.

946-10-55-4:
An investment company should have no substantive activities other than its investing activities and should not have significant
assets or liabilities other than those relating to its investing activities, subject to the exception in the following paragraph.

946-10-55-5:
An investment company may provide investing-related services (for example, investment advisory or transfer agent services) to
other entities, directly or indirectly through an investment in an entity that provides those services, as long as those services
are not substantive. However, an investment company may provide substantive investing-related services, directly or indirectly
through an investment in an entity that provides those services, if the substantive services are provided to the investment company
only.

We
describe our business activities and our intentions as follows in our Annual Report:

Subject
to additional financing, the Company plans to create a portfolio of Digital Assets including bitcoin and other “protocol
tokens” to provide investors a diversified pure-play exposure to the bitcoin and blockchain industries. The Company intends
to acquire Digital Assets through open market purchases. The Company has not participated in any initial coin offerings as it
believes most of the offerings entail the offering of Digital Securities and require registration under the Securities Act and
under state securities laws. Since about July 2017, initial coin offerings using Digital Securities have been (or should be) limited
to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial coin
offerings or from purchasers in such offerings. Additionally, the Company may acquire Digital Assets by resuming its transaction
verification services business through outsourced data centers and earning rewards in Digital Assets by securing their respective
blockchains. The Company will carefully review its purchases of Digital Securities to avoid violating the Investment Company Act
of 1940 (the “Investment Company”) and seek to reduce potential liabilities under the federal securities laws.

As
described above, the Company is in the early stages of a Digital Assets business, including bitcoin and other “protocol
tokens” and is working on building a business to obtain digital assets and which may entail running specialized servers
which solve a set of prescribed complex mathematical calculations in order to add a block to a blockchain and thereby confirm
Digital Asset transactions. Further, the Company does not provide investment services or investment management services to other
entities. The Company does not have significant assets or liabilities other than those relating to cash and digital assets as
it is in the early stages of building its business.

Of
note, the 1940 Act sets out a three-pronged definition of an investment company. The prong that causes operating companies the
most trouble is the 40% Test contained in Section 3(a)(1)(C). Under this section, companies with “investment securities”
comprising more than 40% of their “total assets (exclusive of Government securities and cash items)” can fall within
the definition of investment company. Under Rule 3a-1, a company that fails the 40% Test will nevertheless be excluded from the
definition of investment company if no more than 45% of the value of its “total assets (exclusive of Government securities
and cash items)” are derived from “investment securities,” and no more than 45% of its net income after taxes
is attributable to “investment securities.” In applying both the 40% Test and the 45% Tests, Government securities
and cash items are excluded from investment securities. We do not believe that bitcoin meet the definition of an investment security
and we would therefore not be in violation of Section 3(a)(1)(C) as of March 31, 2018. This is further supported by Jay Clayton’s
recent testimony in front of Congress on April 27, 2018 where he commented on bitcoin as a security stating before the United
States House Appropriations Committee that “A pure medium of exchange, the one that’s most often cited, is Bitcoin,
as a replacement for currency, that has been determined by most people to not be a security.” Since the transcript of Mr.
Clayton’s testimony on the Commission’s website includes only his planned remarks and does not contain his answers
to questions from Representative, we refer to a link on The U.S. House of Representatives Committee on Appropriations website
here:

https://appropriations.house.gov/calendar/eventsingle.aspx?EventID=395258,
his statements on digital currencies begin at 32min and 16 seconds into the video. Therefor we believe that it is no longer our
consideration as to whether we are an investment company, but rather that it has been clearly defined by implications made by
the SEC Chairman in front of Congress. Our focus on bitcoin has kept us under the 40% limit; further we and our counsel believe
that ether, our other cryptocurrency, is not presently a security.

U.S.
GAAP provides the following guidance on sources of evidence of the entity’s business purpose and substantive activities:

946-10-55-6:
Evidence of the entity’s business purpose and substantive activities may be included in the entity’s offering memorandum,
publications distributed by the entity, and other corporate or partnership documents that indicate the investment objectives of
the entity. Evidence of the entity’s business purpose and substantive activities also may include the manner in which the
entity presents itself to other parties (such as potential investors or potential investees). For example, an entity that presents
its business to its investors as having the objective of investing for capital appreciation has characteristics that are consistent
with the business purpose and substantive activities of an investment company. Alternatively, an entity that presents itself as
an investor whose objective is jointly developing, producing, or marketing products with its investees has characteristics that
are inconsistent with the business purpose and substantive activities of an investment company.

See
our response above, which includes an excerpt of the description of our business purpose and plans of substantive activities as
described in the prospectus at page 1. Our investor relations materials further support our goal of creating a portfolio of digital
assets including bitcoin and other “protocol tokens”, potentially acquiring digital assets by resuming our transaction
verification services business and identifying additional acquisition opportunities in the blockchain space. Our characteristics
are inconsistent with the business purpose and substantive activities of an investment company. Further, we have been involved
in the bitcoin and blockchain industry since 2013 and our activities to date and our proposed activities are not one of an investment
company. For example, in 2014, 2015 and 2016 a substantial portion of our revenue was derived from our digital currency mining
operation and we also had revenue from our ecommerce platform in 2013, 2014, 2015, 2016 and 2017.

U.S.
GAAP provides the following additional guidance on exit strategies of investment companies:

946-10-55-7:
An entity’s investment plans also provide evidence of its business purpose and substantive activities. Accordingly, an investment
company whose business purpose and substantive activities include realizing capital appreciation should have an exit strategy
for how it plans to realize the capital appreciation of its inve